Autumn Statement 2023: What does it mean for business?
The Autumn Budget is a statement presented to the House of Commons by the Chancellor of the Exchequer which includes a review of the nation’s finances and the present economic climate, as well as the government’s policy proposals across a range of measures, including taxation and public expenditure.
In the 2023 Autumn Budget, the Chancellor made it a priority to drive growth and incentivise investment in R&D and innovation. To achieve these plans, this Budget announces a number of measures including legislative reforms, tax cuts, and plans to encourage more people into employment.
What was announced?
The Chancellor announced that the latest projections by the Office for Budget Responsibility (OBR) anticipate CPI inflation dropping from its current rate of 4.6 per cent to 2.8 per cent by the end of 2024, before falling to the 2 per cent target in 2025. The OBR also noted that inflation has now fallen to 4.6 per cent from a figure of 11.1 per cent this time last year.
The budget affirmed that the economy has avoided, and continues to avoid, a technical recession, and is in fact set to grow by 0.6 per cent in the current year, 0.7 per cent next year, 1.9 per cent in 2026 and 2.0 per cent in 2027.
The OBR also forecast that underlying debt will be 91.6 per cent of GDP next year, 92.7 per cent in 2024-25 and 93.2 per cent in 2026-27, before declining in the final two years of the forecast to 92.8 per cent in 2028-29.
The OBR’s central forecast anticipates unemployment rising to 1.6 million people (4.6 per cent of the labour force) and peaking in the second quarter of 2025.
The government has committed £50 million of investment to deliver a two-year apprenticeships pilot to explore ways to stimulate training in these sectors and address barriers to entry in high-value standards.
From 1 April 2024 the Chancellor announced that the National Living Wage will increase by 9.8 per cent to £11.44 an hour for eligible workers across the UK aged 21 and over. Young people and apprentices on the National Minimum Wage can also expect to see a boost to their wages.
Supporting people back to work
The government also announced a number of measures to support the long-term unemployed into work. These include expansion of the Restart Scheme across England and Wales, making those who have been on Intensive Work Search for 6 months now eligible (as opposed to the previous requirement of 9 months) and introducing tracking of participants’ activities to ensure compliance with scheme requirements.
New measures also include work coach reviews and, for some claimants, mandatory time-limited work placements or new intensive work search activities for Universal Credit claimants in England and Wales who have completed Restart and remain unemployed after 18 months.
The Chancellor also committed to expanding Additional Jobcentre Support currently live in 90 Jobcentres in England and Scotland to trial intensive support for people who have been receiving Universal Credit for 7 weeks, in addition to the support after 13 and 26 weeks announced at Spring Budget 2023.
Further, the Chancellor announced a series of new measures to support those experiencing long-term sickness and disabilities into work.
These include expanded access to Individual Placement and Support and NHS Talking Therapies in England for those experiencing mental illness.
The government also announced intentions to double the number of yearly places on Universal Support to 100,000.
In addition to this, the government intends to establish an expert group to develop a voluntary minimum framework setting out the minimum level of Occupational Health intervention that employers could adopt to help improve employee health at work, and to reform the activities and descriptors in the Work Capability Assessment for new claimants from 2025.
Plans have also been announced to explore reforms of the fit note process to support more people to resume work after a period of illness.
In 2021 the government announced the super deduction to incentivise business investment. This was then replaced with full expensing for 3 years from 1st April 2023, allowing businesses to write off the full cost of qualifying plant and machinery investment.
In this latest Budget, the Chancellor has announced that the move to full expensing will be made permanent. The OBR expect this will unlock an additional £14 billion of investment over the forecast period.
The government has also announced changes worth an estimated £280 million a year to R&D tax reliefs, with a view to driving innovation in the UK.
Following consultation, the current R&D Expenditure Credit and SME schemes will be merged from April 2024 onwards.
The rate at which loss-making companies are taxed within the merged scheme will be reduced from 25 per cent to 19 per cent.
The intensity threshold in the R&D intensives scheme will also be reduced from 40 per cent to 30 per cent for accounting periods that start on or after 1 April 2024. A one year grace period will also be introduced, providing certainty for companies who dip under the 30 per cent threshold that they will continue to receive relief for one year.
Further, a business rates support package was announced, which is estimated to be worth £4.3 billion over the next five years. The small business multiplier will be frozen for a fourth consecutive year, and Retail, Hospitality and Leisure relief will be extended. The standard rate multiplier will be uprated in line with CPI inflation.
The government also announced plans to extend the National Insurance Contribution (NIC) relief for employers of eligible veterans for one year. The relief means businesses pay no employer NICs on annual earnings up to £50,270 for the first year of a qualifying veteran’s employment in a civilian role.
The OBR report that between 2022-23 and 2028-29, a set of previously announced threshold freezes means that nearly 4 million additional individuals will be expected to pay income tax, 3 million more will pay higher rate income tax, and 400,000 more will pay additional rate income tax.
This represents an increase in the number of taxpayers in each band of income tax – 11 per cent for the basic rate band, 68 per cent for the higher rate and 49 per cent for the additional rate. Relative to the March forecast, this is a respective increase in 2027-28 of 830,000, 900,000, and 43,000.
However, the Chancellor has announced that the main rate of Class 1 employee NICs will be cut from 12 per cent to 10 per cent from 6 January 2024. The government estimates that this will provide a tax cut for 27 million working people, with the average worker on £35,400 anticipated to receive a tax cut in 2024-25 of over £450.
Taxes for self-employed individuals will also be reduced. From 6th April 2024 Class 2 self-employed National Insurance Contributions (NICs) will be abolished and the main rate of Class 4 self-employed NICs will be cut from 9 per cent to 8 per cent.
Pensions and insurance
The government also announced the return of the triple lock for the new and basic state pensions, which guarantees that payments rise in line with the largest of September's CPI measure of inflation, average wage growth, or 2.5 per cent, and uprating of the basic State Pension, new State Pension and Pension Credit standard minimum guarantee for 2024-25 in line with average earnings growth of 8.5 per cent.
The chancellor additionally set out plans for a call for evidence on a lifetime provider model which would allow individuals to have pension contributions paid into an existing pension scheme when they change employer, with the aim to provide individuals with greater agency and control over pensions.
Further pension reforms were also announced, with the intention to provide better outcomes for savers, drive a more consolidated pensions market and enable pension funds to invest in a diverse portfolio. These measures represent the next steps of the Chancellor’s Mansion House reforms.
Firstly, the Financial Conduct Authority (FCA) will consult next spring on the next steps of a new Value for Money Framework. This will require schemes to compare themselves against others in the market, including large scale schemes, to ensure they are delivering value for their members.
The government will also consult this winter on how the Pension Protection Fund can act as a consolidator for schemes unattractive to commercial providers and whether changes to rules around when surpluses can be repaid, including new mechanisms to protect members, could incentivise investment by well-funded schemes in assets with higher returns. The authorised surplus repayment charge will also be reduced from 35 per cent to 25 per cent from 6 April 2024.
To support pension scheme investment into the UK’s most innovative companies, the government announced intentions to commit £250 million to two successful bidders in the Long-term Investment for Technology and Science (LIFTS) initiative.
This will create new investment vehicles tailored to the needs of pension funds, generating over a billion pounds of investment from pension funds and other sources into UK science and technology companies.
Following positive feedback from industry, the government additionally confirmed its intention to establish a Growth Fund within the British Business Bank (BBB).
The Growth Fund is expected to draw upon the BBB’s expertise and a permanent capital base of over £7 billion to give pension funds access to investment opportunities in UK businesses. A new Venture Capital Fellowship also intends to help produce the next generation of world-leading investors in the UK’s renowned venture capital funds to support investment into the UK’s most innovative high-growth companies.
Alongside measures on pensions investment, the government is also legislating to give effect to the Solvency II reforms to deliver a more tailored, clear and simple regulatory regime for the insurance sector.
The government anticipates that these reforms will boost economic growth by incentivising private investment for productive assets, such as infrastructure, and reports that industry have committed to investing over £100 billion in a greater range of productive assets over the next decade as a result.
Attracting foreign direct investment
Following a commitment to ensure that the UK is the most attractive destination in Europe for internationally mobile investment, in March 2023 the Chancellor and the Secretary of State for Business and Trade asked Lord Harrington to review the government’s approach to attracting foreign direct investment.
This Review has been published alongside the Autumn Statement, and the government has responded and accepted in principle its headline recommendations.
In the Autumn Statement, the Chancellor announced plans to establish a new Ministerial Investment Group, to be tasked with driving the government’s ambition on investment. This will be backed by additional resource and an improved toolkit for the Office for Investment, intended to deepen its world-class concierge offer to strategically important investors.
Investment in innovation
The government has announced a range of measures intended to support innovation across the nation. These include a £500 million investment in UK based compute, to ensure universities, scientists and start-ups have access to the compute power required to make the UK an AI powerhouse. Additionally, the government will be launching the first AI safety institute, backed by an initial £100 million investment.
The government is also looking support the development of green industries and the Chancellor announced a £960 million investment in a new Green Industries Growth Accelerator (GIGA).
Further, the government announced plans to invest £25 million in scientific infrastructure through Public Sector Research Establishments, and £145 million through Innovate UK, to support business innovation.
The government expects further growth and a rise in employment as creative industries embrace new technologies. To maximise the benefits of this, the Chancellor announced measures to boost the international competitiveness of tax incentives for the UK’s visual effects sector by April 2025. Further, to support the production of film and high-end TV across the UK, the Chancellor announced plans to provide £2.1 million of new funding next year for the British Film Commission and the British Film Institute Certification Unit. Furthermore, the government will review public investment in R&D spending for the creative industries to a Spending Review timeframe.
The government has also stated that the Investment Zones programme in England will be extended from five to ten years.
Investment Zones will be provided with a £160 million envelope from 2024-25 to 2033-34 which can be used flexibly between spending and tax incentives. The government has also announced an additional Investment Zone in the West Midlands, which will focus on advanced manufacturing with investment from Bruntwood SciTech and Woodbourne Group worth £70 million in total and backed by over £5 million of investment into enabling digital platforms to support advanced manufacturing growth.
Finally, the government has said it is creating a £150 million fund to support Investment Zones and Freeports across the UK to secure business investment opportunities. It is anticipated that this fund will be available over 5 years.
The Autumn Statement saw a number of changes related to infrastructure. Among these, the Chancellor stated that local authorities will be able to recover the full costs of major business planning applications. This is in return for being required to meet guaranteed timelines, which if they fail, will see fees refunded automatically to firms and applications processed free of charge.
The Chancellor also set out intentions to reform the grid connection process to reduce the time it takes for new projects to connect to the electricity grid.
The Chancellor has announced the provision of £110 million of funding to support local planning authorities to deliver high quality schemes to offset nutrient pollution. Furthermore, the government have also stated that they are expanding an existing £3 billion scheme with a further £3 billion to support housing associations to access cheaper loans for quality and energy efficiency works as well as new homes.
Additionally, the government announced plans to invest a further £32 million across housing and planning to unlock thousands of homes across the country.
This includes additional funding to tackle planning backlogs in Local Planning Authorities. Finally, the Chancellor has said that the government will be allocating £450 million to the 3rd round of the Local Authority Housing Fund, which will deliver an additional 2,400 homes.
The Chancellor also announced that Local Housing Allowance will be unfrozen and the rate will be increased to the 30th percentile of local market rents, providing an anticipated 1.6 million households an average of £800 of support in 2024.
Payment terms for government contractors
To support SME cashflow, and encourage investment in innovation, the government announced plans to introduce more stringent payment time requirements for firms bidding for large government contracts. From April 2024, it was announced that firms bidding for government contracts over £5 million will have to demonstrate they pay their own invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years.
What is the GBCC’s reaction?
With higher levels of inflation creating more than expected fiscal headroom, the Chancellor was able to deliver an Autumn Statement which took sensible steps to unlock investment and tackle cost pressures for struggling businesses.
Data gathered via our Quarterly Business Report has consistently underlined the historical low levels of capex investment, so it was pleasing to see the Chancellor has listened to our calls and made full expensing a permanent policy – reforming the pension fund system, and R&D tax reliefs should also offer a much-needed boost for investment opportunities.
Simplifying the planning process in order to turbocharge infrastructure investment is a step in the right direction and will hopefully provide more market confidence following the baffling decision to curtail the progress of HS2 beyond Birmingham.
The confirmation of the Levelling Up Zone in the West Midlands will offer a massive boost to the region, particularly in terms of job created and the opportunity to leverage private sector investment.
With many firms still suffering from eye watering costs, it was also good to see the Chancellor freeze the business rates multiplier and extend relief for hospitality and retail businesses.
However, a more radical proposal would have been to extend the multiplier approach to larger businesses given that many smaller firms operate in larger rated premises.
Although much coverage was devoted to cuts in National Insurance for employees, it’s a shame that an equivalent scheme wasn’t introduced for employers given the price pressures many continue to face.
As businesses continue to grapple with recruitment challenges, it was pleasing to see additional funding being made available for boosting Apprenticeship opportunities.
Nevertheless, we would have like the government to go further and offer businesses flexibility in how they spend levy funding and it remains to be seen how the mandatory work scheme will operate in practice.
With the OBR’s projections laying bare the fragility of the economic recovery, it’s clear the Mr Hunt cannot rest on his laurels.
In particular, the government will need to build on this base in order to continue to bring down inflation, tackle labour market gaps and fire investment – today marks a solid start.